COAG announcements on energy efficiency measures

Introduction

The Council of Australian Governments (COAG), at its meeting in Hobart on 30 April 2009, released a communiqué which outlined significant agreements between the Commonwealth, States and Territories in relation to renewable energy and energy efficiency.

The announcements relate to:

1. agreement to establish a single, national and expanded mandatory Renewable Energy Target
2. agreement to remove certain regulatory impediments to the full pass-through of the increased cost of electricity due to the operation of the Carbon Pollution Reduction Scheme and the expanded Renewable Energy Target, and
3. finalisation of a draft National Strategy for Efficiency.

Agreement on single national expanded renewable energy target

COAG agreed to the Federal government’s expanded Renewable Energy Target (RET), the principal features of which are the following:

1. The RET will continue until 2030.
2. The RET will require a progressively greater proportion of Australia’s electricity to be generated from renewable sources, rising to 20 per cent (or approximately 45,000 gigawatt-hours (GWh), as contrasted with the currently applicable 9,500 GWh) in 2020 and maintaining that level until 2030.
3. The expanded targets will commence from 1 January 2010, with a target for that year of 12,500 GWh.
4. The shortfall charge payable by a liable entity which fails to meet its target will increase from the current $40 per megawatt-hour to $65 per megawatt-hour (unindexed).
5. All existing projects which are eligible to generate Renewable Energy Certificates (RECs) under the Mandatory Renewable Energy Target (MRET) will remain eligible to participate in the RET, and the same eligibility criteria for new projects will apply.
6. There will be additional transitional incentives for small-scale solar, wind and hydro-electricity systems in the form of a ‘multiplier’ by which such activities will be able to create, in relation to the first 1.5 kilowatts of system capacity, a fixed multiple of the RECs to which they would otherwise be entitled. The multiplier would be five from 2009–10 to 2011–12, decreasing to zero in 2015–16.
7. There will be transitional assistance for activities which are identified as ‘emissions-intensive trade-exposed’ (EITE) under the proposed Carbon Pollution Reduction Scheme (CPRS). Activities which will receive 90 per cent or 60 per cent EITE assistance under the CPRS will receive a 90 per cent or 60 per cent exemption respectively from liability under the RET, but only in relation to the expanded portion of the renewable energy target (that is, the portion beyond the current 9,500 GWh target).¹
8. The RET will be reviewed in 2014 (at the same time as the CPRS will be due for review). That review will be extend to the transitional assistance measures for EITE activities.
9. The RET will absorb all existing and proposed state and territory renewable energy schemes, including the existing Victorian Renewable Energy Target (VRET) and the proposed New South Wales Renewable Energy Target (NRET).

Implementation of the RET as agreed by COAG will require the substantial amendment or replacement of the Renewable Energy Amendment (Increased Mandatory Renewable Energy Target) Bill 2008, currently before the Senate, as well as legislative action by Victoria in order to abolish the Victorian Renewable Energy Target (which has been in force since 1 January 2007) and possibly by New South Wales (in order to withdraw the Renewable Energy (New South Wales) Bill 2007 which is before Parliament).

Australian Energy Market Agreement amendments proposed

COAG’s communiqué indicated that the governments have reached agreement that the Australian Energy Market Agreement is to be amended to specify that, where retail prices are regulated, the increases in energy costs associated with the proposed Carbon Pollution Reduction Scheme will be passed through to customers.

The communiqué noted that the Ministerial Council on Energy (MCE) will soon consider a similar cost pass-through provision in relation to the RET.

COAG has tasked the MCE to provide a report by the end of 2009 indicating likely electricity price rises over the next three years and the components of those rises.

National Strategy for Energy Efficiency

COAG finalised a draft of the National Strategy for Energy Efficiency (the National Strategy, which COAG agreed to develop in October 2008) and signed a Memorandum of Understanding for implementing the National Strategy, with a commitment to consider signing an Intergovernmental Agreement on the National Strategy at its next meeting in Darwin on 2 July 2009.

As a first step, COAG agreed to five measures to improve the energy efficiency of commercial and residential buildings. The measures are:

1. an increase in the energy efficiency requirements for all classes of commercial buildings in the Building Code of Australia (BCA) from 2010
2. the phase-in of mandatory disclosure of the energy efficiency of commercial buildings and tenancies commencing in 2010
3. an increase in the energy efficiency requirements for new residential buildings to 6 stars or equivalent nationally in the 2010 update of the BCA, to be implemented by May 2011
4. new efficiency requirements for hot-water systems and lighting, and
5. the phase-in of mandatory disclosure of residential building energy efficiency, greenhouse and water performance at the time of sale or lease, commencing with energy efficiency by May 2011.
   
   The draft National Strategy contains many other significant components, including:
   
6. extending the application of the Federal Energy Efficiency Opportunities program to smaller energy users
7. accelerating and expanding the Minimum Energy Performance Standards (MEPS) and labelling program, and establishing national legislation for these matters
8. gradually implementing Greenhouse and Energy Minimum Standards (GEMS) to cover non-electrical appliances and system components (such as air conditioning ducts)
9. phasing out inefficient lighting products and greenhouse-intensive hot-water systems, and
10. providing a range of informational services to help address information-based market distortions and assist households and businesses to transition to a low-carbon future.

This article was written by John Taberner, Consultant, and Jason Johnston, Solicitor, Sydney

Endnotes

1. Subsequent to the COAG communiqué, on 4 May 2009 the Federal Government announced proposed changes to the EITE assistance program under the CPRS, including the establishment of a Global Recession Buffer under which, for the first 5 years of the CPRS, EITE assistance would be given at a level of 95 per cent (instead of 90 per cent) or 70 per cent (instead of 60 per cent), as the case may be. It is presently unknown whether these proposed changes will be reflected in the compensation arrangements for the expanded RET.

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